Here's how it works. Let's say the property is listed at $150,000 and the buyer having looked at the property wants to offer $142,000, but because the buyer also wants the seller to assist financially, the buyer raises the offer by the amount of the assistance to $149,000 and puts a clause into the agreement such as "Seller agrees to pay up to $7000 towards buyer costs as determined by mortgage lender."
There are three key points to remember when dealing with a seller assist.
- Don't artificially raise the sale price beyond fair market. If you start at the list price and add a seller assist on top of that then you'll likely have a problem with the appraisal.
- Mortgage lenders will only permit the seller to pay up to the actual closing costs. Be careful to NOT over estimate the costs. You'll end up paying a higher price for the house than necessary.
- Each mortgage program has a specific guideline setting a cap on the seller assist. Ask the loan officer for the cap in writing up-front. The cap is off the radar of way too many loan officers and I've seen many buyers horrified when at the last minute a mortgage underwriter caps the seller assist at a figure much lower than the amount in the agreement of sale. Confirming the cap early in the transaction will allow you to have realistic expectations.
Oh, and one more thought. The real sale price is the sale price with the seller assist added. Don't allow either party to be confused. The seller should understand that the gross sale price is the higher figure and they should show their tax preparer the HUD-1 Settlement Statement to document the amount of costs paid on behalf of the buyer to cover any tax concerns.